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Allstate Backs Down Somewhat to Cut Agency's Pay

Source: WSJ - Erik Holm

Posted on 22 Dec 2011

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Allstate Corp. told its sales force that it was partially backing down on an unpopular revision to the way it calculates their pay.

The Northbrook, Ill., insurer in a memo on Wednesday alerted its sales force that it would cut agents' base commissions to 9% of their premiums, from 10% at present, beginning in 2013 instead of the 8% cut it had floated previously. The 9% base will last until at least 2014, the company said.

The basic goal behind the change in the compensation structure remains the same: Allstate will use the money it saves on base commissions to fund additional rewards for agents who meet sales targets and service goals.

The pay overhaul is designed to boost the effectiveness of Allstate's sales force after years of losing market share to smaller rivals including Geico Corp. and Progressive Corp. Executives have said the changes in pay will better reward larger and more successful agencies, but may prompt smaller agencies to shut down or sell themselves.

An Allstate spokeswoman said in September that the company had no set target for how many agencies it expected to have once the process is completed. It now has about 11,500 agencies in the U.S.

The original plan to cut the base pay to 8% was met with a broad outcry from the company's sales force, and supervisors quickly began telling agents that the 8% figure wasn't set in stone.

The plan was conceived under Joseph Lacher, who was forced out by Chief Executive Tom Wilson before it could be implemented. His departure was said to be unrelated to the compensation overhaul, but was tied in part to the performance of the home- and auto-insurance units Mr. Lacher oversaw.

Mark LaNeve, the company's chief marketing officer and senior executive vice president for agency operations, is now overseeing the overhaul in agent pay.

Under the revised pay program, agents will be able to earn an additional 6% in bonuses on top of their 9% base, giving them the possibility of earning total commissions as high as 15% of their annual premiums. That's up from the current 14.2% for top performers.

A company spokeswoman said the change in the compensation will "better reward agency owners for serving our customers, investing in their business and delivering higher levels of performance."

Jim Towns, co-chairman of Allstate's Agency Executive Council, said the change "gives agency owners time to transition their business strategy and the agency owner can plan into the future now that we know the commission structure for the next three years," according to a statement provided by the company. The Agency Executive Council is composed of about 20 agency owners who serve as a strategic sounding board for Allstate's senior executives.